Pfizer shows the future of the modern pharmaceutical company

Published 7:00 pm, Monday, January 22, 2007

Well, I guess today you have to in light of the fact that Pfizer Inc. announced Monday it was closing its research facilities in those communities, striking more than 2,400 jobs from Michigans already beleaguered employment scene. Im thinking you might have to look, eventually, overseas.

If you want to see the future of the modern pharmaceutical company, look no further than Ann Arbor and Kalamazoo.

Well, I guess today you have to in light of the fact that Pfizer Inc. announced Monday it was closing its research facilities in those communities, striking more than 2,400 jobs from Michigans already beleaguered employment scene. Im thinking you might have to look, eventually, overseas.

The culprit: According to officials from the company, the closing of the research facility in Ann Arbor, where 2,100 people worked, and the two smaller facilities in Kalamazoo and Wayne Countys Plymouth Township are merely part of a global restructuring that began in 2005 to lower costs and increase effiency. In total, more than 10,000 workers, or about 10 percent of the Pfizer workforce, will be idled because of the restructuring.

But at the heart of Pfizers troubles are a lackluster pipeline of new drugs coming on the market, and the loss of patents on some of its higher-selling drugs, including the antidepressant Zoloft. This means that Pfizer is simply responding to the market, a market that is being pushed by insurance companies and bunches of politicians, including Sen. Debbie Stabenow of Michigan. That market features a shift to generic, or as our politicians want to call them, cheaper drugs.

In reality, Pfizer is facing the loss of about $14 billion in revenues due to expiring patents. Analysts say the company will lose about 41 percent of its revenue to generic drugmakers before the year 2012.

In reality there are no "cheaper" drugs. A pill is a pill is a pill. What the politicians are saying is that consumers should get the pill without having to pay for those nasty things that go along as baggage  risk and research costs.

There are a couple of problems inherent in the method by which we bring new drugs online. First, doing research on promising drugs, because of the requirements government places on the companies, often costs hundreds of millions of dollars and years to document. Then, if the drug is determined to be safe and effective, it is allowed to be sold commercially.

But a company has a short timeframe in which to recoup its costs and make a profit, so it can pay its investors and do more research on other promising drugs. Once its patents run out, any company can emulate the success of the bigger, more creative, drug company on the cheap, with no risk and no research costs.

Because it takes so long to document the safety and effectiveness of a drug, a company needs to have a bunch of them in the pipeline so it can keep bringing them online and selling them. If they guess wrong, as Pfizer did with torcetrapib, a new cholesterol treatment, the pipeline begins to dry up. And with it goes its revenues, but not its costs. By the way, Pfizer sunk $800 million into torcetrapib research before abandoning it.

So what we are seeing in Pfizer is a response to the pressures of the marketplace. When revenues drop, costs have to, and the cost of relentlessly promoting and awarding generic drugmakers in Michigan is 2,400 jobs.